SARB Kept Key Rate Steady at 7.5% Due to Global and Domestic Uncertainties
Bottom Line: Despite we thought it was likely that South African Reserve Bank (SARB) will cut the key rate from 7.5% to 7.25% during the MPC scheduled on March 20 as inflation remained below SARB’s target of 4.5% and core inflation continued to decelerate in February, SARB decided to keep the policy rate stable at 7.5% considering unpredictable global outlook, trade risks, and uncertainty about the national budget. As expected, the MPC decision was split, with four members supporting an unchanged stance and two members preferring a 25 bps cut. Our end-year key rate prediction remains 7.0% for 2025.
Figure 1: Policy Rate (%), CPI and Core Inflation (YoY, % Change), January 2023 – March 2025
Source: Continuum Economics
SARB’s MPC convened on March 20 to determine the second key rate decision of 2025, and announced that it kept its main lending rate steady at 7.50%. The decision was a close call with four members supporting an unchanged stance and two members preferring a 25 bps cut. SARB mentioned in its written statement that a cautious policy approach was needed given global and domestic uncertainties. The MPC also highlighted that its decisions will be made on a meeting-by-meeting basis, and will continue to be outlook dependent, responsive to data developments, and sensitive to the balance of risks to the forecast.
The rate decision was taken one day after the release of February inflation print. StatsSA announced on March 19 that annual inflation remained unchanged at 3.2% YoY in February while the main contributors were housing and utilities, food and non-alcoholic drinks, as well as services related to restaurants and accommodation. The inflation remained close to the lower bound of SARB’s target range of 3% to 6% as core inflation hit its the lowest level since December 2021, with 3.4% YoY in February.
Being one of the major upside risks to the inflation trajectory, there were some bad news from power cuts (loadshedding) recently which could ignite inflation in the upcoming months. Eskom announced on March 7 that Stage 3 loadshedding was implemented until March 10, after a Stage 6 power cut on February 23. Energy experts warn that the recent load shedding reminded that rolling blackouts are still a threat since Eskom’s generation capacity remains unreliable and unpredictable.
Talking about the policy rate decision, SARB governor Kganyago emphasized that the world economy is experiencing extreme levels of uncertainty, with the outlook unpredictable. Kganyago mentioned that “Trade tensions have escalated, and longstanding geopolitical relationships are shifting abruptly. (…) While local inflation appears to be contained—with average headline inflation now projected at 3.6% this year and moving up to 4.5% in 2026—the risk balance is to the upside as headline inflation has edged higher over the past few months.”
We feel SARB will likely consider restarting cutting cycle during MPC meeting on May 29 if there will be no spikes in inflation in the upcoming months, and there are no major adverse global and domestic developments impacting the South African economy. Our end-year key rate prediction remains 7.0% for 2025.